There were nine midstream deals that contributed $11.1 billion. According to PwC, there has been a rise in midstream processing deals during 2012 due to the oil and gas liquids being extracted from the shale plays and as companies think through the various scenarios that may play out with exports.

Keywords:

With natural gas prices hitting a 10-year low, US oil
companies have shifted their focus to adding more profitable
liquid-rich shale plays to their portfolios, leading to a
sharp rise in the number and value of third quarter deals,
according to a new study from professional services firm
PricewaterhouseCoopers (PwC).

There were 34 asset deals during the third quarter with a total
deal value of $31.4 billion, a 131% increase in total value
over the same time period last year and representing 93% of
total deal value during the third quarter of 2012.

In fact, asset transactions represented nine of the top 10
mega deals (deals with values of $1 billion or
more) in the quarter, according to the study.

For the three month period ending September 30, 2012, there
were a total of 39 oil and gas deals with values greater than
$50 million, accounting for $33.7 billion in deal value, a
slight dip from the 44 deals during the third quarter of 2011,
and a decline in total deal value from $41.1 billion.

On a sequential basis, while deal volume dropped from the 51
transactions in the second quarter of 2012, total deal value
increased by $4.1 billion, with average deal size jumping
almost 50% to $864 million during the third quarter of
2012.

The third quarter had 10 mega deals, which
were dominated by upstream asset transactions as oil and gas
companies pursued oily plays due to natural gas prices
continuing to remain depressed, said Rick Roberge,
principal in PwCs energy M&A practice.

What we saw in the third quarter are companies hunting
for more profitable pure oil assets to satisfy the demand of
all stakeholders involved. Asset transactions offer the
opportunity to specifically target those types of
properties.

For deals valued at over $50 million, upstream deals made up
54% of activity in the third quarter of 2012 with 21
transactions, accounting for $18.7 billion, or 55% of total
third quarter deal value.

There were nine midstream deals that contributed $11.1
billion. According to PwC, there has been a rise in processing
deals in the midstream sector during 2012 due to the oil and
gas liquids being extracted from the shale plays and as
companies think through the various scenarios that may play out
with exports.

Five downstream deals during the third quarter of 2012 added
$1.7 billion, while oilfield services contributed four deals
worth $2.2 billion.

There were five corporate transactions with values greater
than $50 million during the third quarter of 2012, with a total
deal value of $2.3 billion, compared to 10 corporate deals
representing $27.5 billion in the third quarter of 2011.

According to PwC, there were 16 deals with values greater
than $50 million related to shale plays in the quarter,
totaling $11.7 billion of total deal value, a small decline
from the 18 shale-related deals during the third quarter of
2011 and a drop from the $33.1 billion in total deal value.

Included in the shale deals in the third quarter of 2012 was
one transaction in the Utica Shale worth $600 million.

At the current commodity prices, the Utica Shale
remains an attractive prospect because of its higher liquids
content, which more companies are shifting towards in
todays economic environment, said Steve
Haffner, a Pittsburgh-based partner with PwCs energy
practice.

However, the Utica Shale and Marcellus Shale are still
relatively immature shale plays in their early stages and,
should natural gas prices rise in the short term, we believe
there could be a lot more M&A activity in both
formations.

The most active shale plays for M&A with values greater
than $50 million during the third quarter of 2012 include the
Bakken in North Dakota, which had six deals with a total value
of $4.4 billion, followed by the Eagle Ford in Texas with three
deals representing $658 million.

For deals valued at over $50 million, the volume of
financial sponsor-backed transactions increased by one deal
during the third quarter of 2012 to seven transactions
(totaling $5.3 billion) compared to the same time period in
2011.

There were 32 strategic deals that contributed $28.4
billion, compared to the 38 deals worth a total of $37.3
billion during the third quarter of 2011.

PwC also notes that during the first nine months of 2012,
master limited partnerships (MLPs) were involved in 24
transactions, representing nearly 20% of total 2012 deal
activity, marking an upward trend of MLP involvement over the
past two years (MLPs represented 15.6% of total deal activity
in 2010 and 18.4% in 2011).

The five deals in the Gulf of Mexico during the third
quarter of 2012 had a total deal value of $7.4 billion which,
according to PwC, marked at least a two and a half year high in
deal value in the region.

Weve seen an upward trajectory with MLP deal
activity in the energy industry over the past two years, and
while MLPs have traditionally been active in the midstream
sector, we believe that there will be more activity with
upstream assets as the number of upstream MLPs is increasing
and more are expected when capital markets are more
receptive, said Roberge.

Another trend that we see developing is M&A
activity in the Gulf of Mexico, which has seen the highest
total deal value during the third quarter than has been
recorded in at least two and a half years. Now that the Gulf is
clearly back in business for M&A, we believe oil and gas
companies will increasingly look there for deal opportunities
going forward.

Foreign buyers announced four deals in the third quarter of
2012, which contributed $4.0 billion, versus nine deals valued
at $17.6 billion during the same period last year.

PwCs M&A analysis is a quarterly report of
announced US transactions in the oil and gas sector with value
greater than $50 million, analyzed by PwC using transaction
data from IHS Herold.

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